Archer Daniels Midland Co. has filed a lawsuit against Canadian Pacific over service disruptions in 2013 and 2014 at crop-processing plants in North Dakota and Minnesota, alleging they stemmed in part from cost-cutting and the Canadian railroad's pursuit of merger partners.
Chicago-based ADM, one of the world's largest grain traders and processors, filed suit against CP in the U.S. District Court for the Central District of Illinois on March 18, seeking damages "resulting from one of the worst and most persistent railroad service failures experienced by ADM in many years."
The U.S. rail system has long served as the lone, dependable way to move grain thousands of miles in the northern U.S. Plains, where there are no commercially navigable rivers.
In early 2014, farmers in the Upper Midwest held the largest grain stocks in years after months of worsening delays that crippled the U.S. farm transportation system.
Canadian Pacific did not immediately respond to a request for comment.
The damages referred to by ADM in several counts in the lawsuit only amount to "several million dollars," but it is potentially embarrassing for CP as it highlights key areas the railroad has touted in its bid to buy Norfolk Southern Corp .
CP in mid-November disclosed its $28 billion offer to buy Norfolk Southern.
The Norfolk, Virginia-based railroad has rebuffed all CP's approaches so far. CP has claimed a deal would result in cost savings of more than $1.8 billion annually.
While some rail customers back the bid, many like package delivery companies UPS and FedEx Corp oppose it. Opponents say cost-cutting initiatives would cause service disruptions.
Since septuagenarian railroad legend Hunter Harrison became chief executive of CP in 2012, Wall Street has cheered the company's cost cuts as a success story.
But ADM's lawsuit claims service disruptions at its facilities in Enderlin and Velva, North Dakota, plus Red Wing, Minnesota are partly the result of CP "engaging in imprudent cost-cutting initiatives."
ADM also blamed the problems on CP's "engaging in ancillary and diversionary management activities during the period pertaining to potential rail merger/acquisition partners."
No. 3 U.S. railroad CSX Corp also rejected a takeover bid from CP in late 2014.
The lawsuit also alleges CP did not allow ADM to use alternative rail providers "to mitigate its service deficiencies." CP has promoted the idea of "open access" that would allow rail customers to use alternatives in similar situations.